{"id":223646,"date":"2021-11-04T20:42:14","date_gmt":"2021-11-04T15:12:14","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=223646"},"modified":"2021-11-09T02:24:08","modified_gmt":"2021-11-08T20:54:08","slug":"sri-lanka-coerced-again-under-rating-threats","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/sri-lanka-coerced-again-under-rating-threats\/","title":{"rendered":"Sri Lanka Coerced Again Under Rating Threats?"},"content":{"rendered":"

By\u00a0Rusiripala Tennakoon<\/a>\u00a0\u2013<\/strong><\/span><\/p>\n

\"\"<\/a>

Rusiripala Tennakoon<\/p><\/div>\n

Some reports and statements serve to be more coercive than serving any positive purpose. It is best to consider the Circumstances, prevailing conditions and any plans ahead for overcoming adverse situations while commenting or making references in judgement which cause damages in consequence. Specially when such comments, views and observations are about a country\u2019s sovereign status this becomes extremely important and warrant fair play and natural justice which involves:\u00a0adequate notice, fair hearing and no bias.<\/strong><\/p>\n

We are all moved about the announcement by Moody\u2019s rating agency about the Sri Lanka\u2019s credit ratings<\/strong> recently for a second time consecutively. While we respect their professional involvement in the matter we are compelled to bring out some versions that we feel have been overlooked in this exercise. There cannot be any difference in opinion about the highly unpredictable circumstances the whole world is facing due to the current Global Pandemic. All are passing through a stage where no one can foresee how things will change and the future effects of some of these. Even the more established economies are facing great difficulties and have resorted to corrective and adaptive measures.<\/p>\n

Sri Lanka is no exception and even worst affected because of the state of our Economy. We depend on many external factors and influences in our economic affairs and any slight variation or a directional change in those cause enormous challenges. Invariably course corrections take time and a planned approach addressing the socio-economic culture prevailing in a democratic set up like ours. WE are going through such a stage facing many issues. Any temporary set backs experienced would have to be assessed in such a backdrop.<\/p>\n

What ever the star readers foretell, so far we have not defaulted in any of our obligations. We have several untouched openings in the event of any unsurmountable situation. Hence what is important is to assess our situation in the context of what our experiences have been and the available avenues before us. It is regrettable that negative predictions become harmful to the hard choice of resolutions we are resorting to. The timing of exposures which do not address our past experiences, current engagements etc. could be damaging. Fortunately the factual situation is not that gloomy. Therefore it would be appropriate for us to examine the ongoing situation despite these coloured paintings.<\/p>\n

The market, on the other hand, seems to have completely ignored Moody\u2019s pessimism. Sri Lanka\u2019s Sovereign Bond yields, which should have reacted to the downgrade adversely, have not jumped at all. In fact, they all have reduced from the levels observed before the downgrade! Perhaps the market has taken due note unlike Moody\u2019s of the strategies and expectations outlined in the Roadmap presented by the Central Bank! Perhaps the market has realised unlike Moody\u2019s that a downgrade before a landmark Budget does not make any sense! Perhaps the market has greater awareness than Moody\u2019s of the imminent recovery of tourism, investment flows and other global activities that will benefit Sri Lanka in the months to come! Perhaps the market now realises how irrelevant rating agencies such as Moody\u2019s have become in this day and age of greater transparency and better ways of debtor-creditor direct communication!<\/p>\n

\"\"<\/a>

Chart: Sri Lanka\u2019s International Sovereign Bond Yield Rates<\/p><\/div>\n

It is admirable that our markets are safely adjusted to adopt to domestic conditions and react realistically to external influences. They seem to value the experiences of our authorities of proven capabilities of sailing through worse situations E.g. the defeat of terrorism amidst several hardships. The Governor recently appointed to steer the country out of this mess is looked upon as a capable proven Central banker who will deliver desired results.<\/p>\n

Passingly with no prejudices I wish to recall what a senior retired renowned Central bankes mentioned referring to the times when it was decided to go with the Rating Agencies in ealy 2000s; \u201cremember when you choose to deal with mafia you have to be mindful of their atrocities \u2026\u2026..<\/em><\/strong>\u201d !<\/p>\n

I also wish to state the non-sacrosanctity despite such attribution in the role and determinations by Rating agencies with a quote;<\/p>\n

\u201cThe Financial Crisis\u00a0<\/em><\/strong><\/p>\n

Credit rating agencies came under heavy scrutiny and regulatory pressure following the\u00a0<\/em>financial crisis<\/em><\/a>\u00a0and\u00a0<\/em>Great Recession of 2007 to 2009<\/em><\/a>. It was believed that CRAs provided ratings that were too positive, leading to bad investments. Part of the problem was that despite the risk, the agencies continued to give mortgage-backed securities (MBSs) AAA-ratings. These ratings led many investors to believe that these investments were very safe with little to no risk.The agencies were accused of trying to raise profits as well as their market share in exchange for these inaccurate ratings. This helped lead to the subprime mortgage market collapse that led to the financial crisis.<\/em>15<\/sup><\/em><\/p>\n

To add fuel to the fire, the agencies’ European sovereign debt ratings were also cause for scrutiny. After the calamity caused by the debt crisis of several European countries including Greece and Portugal, the agencies downgraded the ratings of other nations in the EU.<\/em>15<\/sup><\/em><\/p>\n

Some have argued that regulators have helped to prop up an\u00a0<\/em>oligopoly<\/em><\/a>\u00a0in the credit rating industry, providing rules that act as barriers to entry for small- or mid-sized agencies.<\/em>16<\/sup><\/em> New rules in the EU have made CRAs liable for improper or negligent ratings that cause damage to an investor\u201d<\/em><\/p>\n

Investors therefore know how to assess and take necessary safeguards and when?<\/p>\n

We request the central bankers to continue to play their role unfettered by untimely comments. WE are a country with many resources envied by others and capable of offering new opportunities to the rest of the world. Patience will take us to the desired goals with proper domestically cooked plans.<\/p>\n","protected":false},"excerpt":{"rendered":"

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